Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Sayden Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 111 Hearing dates: 27 March 2013 Decision date: 10 May 2013 Before: Meagher JA at [1]; Tobias AJA at [2]; Gzell J at [3] Decision: (1) Leave granted to the respondent to argue on the appeal that whereas cl 2(c)(iii) of the Deed grants an implied power to distribute land in specie s 3A(3B)(a)(ii) of the Management Act requires a power to distribute trust property in specie. (2) Appeal allowed. (3) Decision of the ADT Appeal Panel of 2 May 2012 set aside. (4) Decision of the ADT Revenue Division dated 7 December 2011 restored. (5) Respondent to pay appellant's costs of the appeal and of the proceedings before the ADT Appeal Panel. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: TAXES AND DUTIES - land tax - whether land subject to a "fixed trust" - trust deed constituting a unit trust amended by including and giving paramountcy to provisions adopting substantially the same language as s 3A(3B) of the Land Tax Management Act 1956 which describes the criteria required by s 3A(3A) to be satisfied for the trust to be taken to be a "fixed trust" - whether criteria satisfied depends on interpretation of amended deed applying orthodox principles of construction - criteria satisfied and trust taken to be a "fixed trust" Legislation Cited: Administrative Decisions Tribunal Act 1997 Land Tax Act 1956 Land Tax Act 1958 (Vic) Land Tax Management Act 1956 Cases Cited: Byrnes v Kendle [2011] HCA 26; 243 CLR 253 Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 Chief Commissioner of State Revenue v Sayden Pty Ltd ATF Griffin Property Unit Trust (RD) [2012] NSWADTAP 14 Commissioner of Taxation v Bamford [2010] HCA 10; 240 CLR 481 CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria [2005] HCA 53; 224 CLR 98 Harmer v Federal Commissioner of Taxation [1991] HCA 51; 173 CLR 264 Sayden Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 288 Category: Principal judgment Parties: Sayden Pty Ltd (Appellant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: J C Kelly SC (Appellant) G Kennett SC, T Wong (Respondent) Solicitors: Munro Lawyers (Appellant) Crown Solicitor's Office (Respondent) File Number(s): CA 2012/194508 Decision under appeal Citation: [2012] NSWADTAP 14 Date of Decision: 2012-05-02 00:00:00 Before: Judge K P O'Connor, President M Hole, Judicial Member C Bennett, Non-judicial Member File Number(s): 119059 Judgment 1MEAGHER JA: The orders proposed by Gzell J should be made for the reasons his Honour gives. 2TOBIAS AJA: I agree with Gzell J. 3GZELL J: Introduction 4This is an appeal on a question of law from an Appeal Panel of the Administrative Decisions Tribunal (ADT) under s 119(1) of the Administrative Decisions Tribunal Act 1997. 5The question of law is whether Sayden Pty Limited as trustee of the Griffin Property Unit Trust (Unit Trust) is liable for land tax with respect to the 2011 land tax year as a fixed trust or as a special trust. 6Section 3AL(2) of the Land Tax Act 1956 provides, subject to exceptions, that the applicable rates of tax are those specified in Sch 13, Pt 1. It specifies rates applicable to taxable values of land above a tax threshold. Section 3AL(2)(b) is an exception. It provides that if the land is subject to a special trust the rate of tax is that specified in Sch 13, Pt 2. It specifies rates applicable to taxable values of land without the benefit of the tax threshold. 7Section 25(1) of the Land Tax Management Act 1956 (Management Act) provides that the owner of any equitable estate or interest in land is liable in respect of land tax as if he or she were the legal owner of the estate or interest and land tax is to be assessed accordingly. Section 25(2) provides that the owner of the legal estate is the primary taxpayer and the owner of the equitable estate is the secondary taxpayer. Section 25(3) provides that the section does not apply to land that is the subject of a special trust. 8The term owner is defined in s 3(1)(a)(i) of the Management Act to include, in relation to land, every person who jointly or severally, whether at law or in equity, is entitled to the land for any estate of freehold in possession. 9It used to be thought that, unless provision to the contrary was contained in a unit trust deed, it conferred on the unitholders a proprietary interest in all the property for the time being subject to the trust (Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 at 609). 10But in CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria [2005] HCA 53; 224 CLR 98, Charles was distinguished. The trustees and managers were interested in the administration of the trusts as they were entitled to large fees and the trustees had unsatisfied rights of indemnity. It was held that none of the units under consideration conferred an estate of freehold in possession in any land held for the unit trusts for the purposes of the equivalent Victorian definition of owner in s 3 of the Land Tax Act 1958 (Vic). 11The Chief Commissioner assessed Sayden on the basis that it was a special trust. Sayden objected. The Chief Commissioner disallowed the objection and Sayden applied for review by the ADT where it was successful (Sayden Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 288). 12The Chief Commissioner sought an internal review of the judicial member's decision to an Appeal Panel where he was successful (Chief Commissioner of State Revenue v Sayden Pty Ltd ATF Griffin Property Unit Trust (RD) [2012] NSWADTAP 14). The legislation 13The terms special trust and fixed trust used to be defined in the Management Act, relevantly for present purposes, as follows: "3A Special trust - meaning (1) For the purposes of this Act, a trust is a special trust if: (a) the trust property includes land, and (b) the trustee of the trust is the owner of the legal estate in the land, and (c) the trust is not a fixed trust. (2) For the purposes of this section, a trust is a fixed trust if the equitable estate in all of the land that is the subject of the trust is owned by a person or persons who would, but for section 25(3), be considered to be owners of the land for land tax purposes. (3) For the purpose of determining whether a trust is a fixed trust under this section, any equitable interest of the trustee as trustee of the trust is to be disregarded. ...." 14In light of the decision in CPT Custodian and the similar definition of owner in the Management Act s 3(1)(a)(i), it was thought that s 3A(2) was unlikely to offer threshold relief to unitholders in a unit trust. It was to overcome this situation that s 3A(3A) and s 3A(3B) were introduced to the Management Act with effect from 2 November 2006. At the relevant date, 31 December 2010, they provided as follows: "(3A) If a trust satisfies the relevant criteria, the persons who are beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land that is the subject of the trust and, accordingly, the trust is taken to be a fixed trust. Note. Under section 25, owners of an equitable estate or interest in land are liable in respect of land tax as if they were legal owners of the land. Owners of an equitable estate in land are treated as secondary taxpayers. (3B) For the purposes of this section, the relevant criteria are as follows: (a) the trust deed specifically provides that the beneficiaries of the trust: (i) are presently entitled to the income of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust, and (ii) are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property, (b) the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed." 15Present entitlement to income is a well-known concept in taxation law. In Harmer v Federal Commissioner of Taxation [1991] HCA 51; 173 CLR 264 at 271 the High Court said: "The parties are agreed that the cases establish that a beneficiary is 'presently entitled' to a share of the income of a trust estate if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment." (references omitted) 16The passage was cited with approval in Commissioner of Taxation v Bamford [2010] HCA 10; 240 CLR 481 at [37]. 17By contrast, present entitlement to capital is novel. Presumably it means an interest in the trust property vested in interest and in possession in that there is no other interest in the property that precedes it, together with a present legal right to demand division of the trust property or its proceeds among the beneficiaries. 18Any interest of the trustee under its right of indemnity is not relevant in this context because s 3A(3) of the Management Act requires any equitable interest of the trustee to be disregarded. 19If a trust deed specifically provides that the beneficiaries are presently entitled to the income subject to payment of the trustee's proper expenses and they are presently entitled to the capital of the trust and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property, the trust satisfies the relevant criteria and by reason of s 3A(3A) of the Management Act, the beneficiaries are taken to be the owners of an equitable estate in the land the subject of the trust and the trust is a fixed trust. The trust deed 20Before its amendment, cl 2 of the trust deed of the Unit Trust (Deed) was as follows: "2 THE FUND (a) The Trustee hereby admits and declares that it will henceforth hold all moneys and property forming part of the Trust Fund upon the trusts herein declared. (b) With the consent of the Trustee moneys and property may be paid or transferred to vested in and accepted by the Trustee as additions to the Trust Fund and to be held by the Trustee as part of the Trust Fund." 21The use of the word "admits" is a little strange, but there can be no doubt that the parties to the Deed intended that the Trustee should hold the property on the trusts declared in the document. 22The only asset of the Unit Trust was a life estate in land in New South Wales. 23The unitholders of the Unit Trust were defined as Registered Holders. Clause 3(a) of the Deed provided that the Trustee should hold the capital and income of the Fund upon trust for the Registered Holders in proportion to the number of units held by them. 24There was only one joint Registered Holder, Mr and Mrs Griffin as trustees of the Griffin Super Fund. 25Clause 3(c)(iii) of the Deed prevented them from requiring the transfer to them of any of the assets or property that from time to time constituted the Fund. 26Clause 4(a) of the Deed provided that the trust should continue until the Vesting Day. It was the first to occur of one day immediately preceding the 80th anniversary of the date of the Deed and such date (if any) that the Trustee might in its absolute discretion appoint. Clause 4(b) provided that upon termination of the trusts the investments of the Fund should be realised and the proceeds and other available cash should be distributed among the Registered Holders in proportion to the number of units held by them. 27Clause 5(a) of the Deed provided that the beneficial interest in the Fund was to be divided into units. Clause 5(b) provided that each unit was to confer an interest in the Fund in accordance with cl 3 but was not to confer any interest in any particular part of the Fund or of any investment but only such interest in the Fund as was conferred on a Registered Holder under the provisions of the Deed. 28Notwithstanding these provisions, cl 6 of the Deed empowered the Trustee to issue special units and classes of units at its discretion, the rights attributable to which would be set out in the certificate. 29The Deed provided for transfer and transmission of units and cl 9 of the Deed provided that a Registered Holder might request redemption of units, which the Trustee in its discretion might refuse. Alternatively, it might consent to the request on such terms and conditions as the Trustee considered appropriate. 30The Deed contained usual provisions with respect to the maintenance of a Register of Registered Holders, powers exercisable by the Trustee, appointment and removal of the Trustee, meetings of Registered Holders, the giving of notice and the power of variation exercisable by the Trustee only with the approval of all Registered Holders. 31In order to attract the benefit of s 3A(3A) and s 3A(3B) of the Management Act, the Deed was amended on 11 December 2010 by the addition of cl 2(c) in the following terms: "2(c) Notwithstanding any other provision of this Deed, the Trustee hereby admits that the Registered Holders: (i) are presently entitled to a fixed proportion of any distribution of income or capital of the trust, made by the Trustee, based on the proportion of income or capital units which each person owned in the Trust; and (ii) are presently entitled to all of the income and capital of the Trust, subject to the payment of the expenses properly incurred by the Trustee in the authorized administration of the Trust; and (iii) may require the Trustee to wind up the Trust and distribute either the land or the net proceeds of the sale of the land; and (iv) the Trustee shall not remove, restrict or otherwise affect by the exercise of any discretion, or by a failure to exercise any discretion, paragraphs (i), (ii) and (iii) of this sub-clause." 32Apart from cl 2(c)(i) of the Deed, the provisions mirror s 3A(3A) and s 3A(3B) of the Management Act. The additional provision defines a Registered Holder's present entitlement to a fixed proportion of income and capital by reference to the proportion of income or capital units held by the Registered Holder. And it adds further protection to that provided by cl 2(c)(iv), by also providing that the provisions of cl 2(c) stand, notwithstanding any other provision of the Deed. 33The entitlement under cl 2(c)(iii) of the Deed of a Registered Holder to require that the Unit Trust be wound up and distributed by necessary implication includes a grant of power to the Trustee to do each of those things. The decision of the Revenue Division of the Tribunal 34Judicial Member Block referred to the respondent's further submissions as RFS. At [16] he said: "The Respondent contends in RFS that it is not sufficient in an amending deed simply to mirror the words of the statute and that more is required.... I do not agree; it is my view that a deed which mirrors the statute is sufficient to achieve the result sought. To hold otherwise would require a technical approach which would not constitute the correct and preferable decision. It follows that the decision under review should be set aside and the assessment must be altered so as to allow the threshold to which I have referred." The decision of the Appeal Panel 35The Chief Commissioner argued before the Appeal Panel (at [23]) that the Tribunal had erred in not considering the terms of the Deed as a whole and in treating the fiscal objectives of its makers as a sufficient basis for finding that the Trust satisfied the criteria in s 3A(3B) of the Management Act. 36It was said that if there were express terms in the Deed that appeared on their face not to be consistent with the relevant criteria the intention of its authors could not be preferred. 37It was also said that the introductory words to cl 2(c) of the Deed ("Notwithstanding any other provision of this Deed") did not make clear that the provisions of that clause prevailed over any subsequent and inconsistent provisions of the Deed so as to give sufficient certainty to its terms to enable a conclusion as to whether it satisfied those criteria. 38The Appeal Panel accepted these arguments. In doing so it proceeded (at [32]) on the basis that the question posed by s 3A(3A) of the Management Act, as to whether a trust satisfied those criteria, was not to be answered solely by reference to the proper construction of the instrument or instruments constituting it, but rather by considering that neither "those directly affected by the instrument's terms nor decision makers such as the [Chief Commissioner] should be left to speculate on which terms stand or fall" as a consequence of the application of the introductory words to cl 2(c) of the Deed. The Appeal Panel erred in concluding that the Deed did not satisfy the criteria 39In my view this approach involved error on the part of the Appeal Panel. It should have approached the interpretation of the Deed by reference to orthodox principles of construction: Byrnes v Kendle [2011] HCA 26; 243 CLR 253 at [102]-[105]. 40Had it done so and given effect to the introductory words of cl 2(c) of the Deed, the Appeal Panel would have concluded that any inconsistencies could be resolved by giving effect to the paramountcy of the provisions of cl 2(c) with the result that the relevant criteria were satisfied. 41The words of cl 2(c) of the Deed while general in expression are perfectly clear. If a discretion is conferred by a provision of the Deed, cl 2(c)(iv) ensures that it cannot be exercised to remove, restrict or otherwise affect the entitlements specified in cl 2(c)(i), cl 2(c)(ii) and cl 2(c)(iii). 42In any other case the introductory words ensure that cl 2(c) of the Deed prevails over any other provision of the Deed that is inconsistent with it. "Notwithstanding any other provision of this Deed" means to the exclusion of any other provision of this Deed or in spite of any other provision of this Deed. It is not necessary to engage in a speculative redrafting exercise. 43At [29] the Appeal Panel identified five provisions of the Deed that, in its view, were "inconsistent with the full vesting of a present entitlement in the beneficiaries." When effect is given to the introductory words of cl 2(c), those inconsistencies are resolved and the relevant criteria satisfied. The five provisions referred to by the Appeal Panel (described by the letters (a) to (e)) are addressed below. 44As to cl 4 of the Deed: (a)The Appeal Panel noted that cl 4 of the Deed conferred an absolute discretion on the Trustee to determine when the Unit Trust would be wound up, but it did not set out any mechanism by which the Registered Holders might initiate the termination of the Unit Trust. That observation is, in my view, misconceived. There is no need for cl 4 of the Deed to contain such a mechanism. It is present in cl 2(c)(iii). A Registered Holder may require the Trustee to wind up the Unit Trust and distribute either the land or the net proceeds of the sale of the land. All that is required is that the Registered Holder make the requirement known to the Trustee. 45As to cl 9: (b)It was pointed out that under cl 9 Registered Holders do not have an absolute right to redemption of their units. Clause 9(b) allows the Trustee to refuse a request for redemption. That is so. But if the Trustee refuses a request or attaches conditions to its consent with which the Registered Holder is dissatisfied, a requirement to wind up the Unit Trust may be made under cl 2(c)(iii) of the Deed. 46As to cl 3(c)(iii): (c)It was pointed out that the Deed does not provide a facility for the Registered Holders to demand the transfer to them of an asset. Reference is made to cl 3(c)(iii) of the Deed (wrongly identified as cl 3(iii)) but its operation is misstated by the Appeal Panel. It does not allow the Trustee to require the transfer to it of any of the assets or property that from time to time constitute the Fund. The provision prevents a Registered Holder from requiring the transfer to the Registered Holder of any of the assets or property that from time to time constitute the Fund. That does not affect the entitlement of a Registered Holder under cl 2(c)(iii) to require the Trustee to wind up the Unit Trust. 47As to cl 6: (d)The Appeal Panel draws attention to the entitlement in the Trustee to issue special units under cl 6. The Appeal Panel points to the potential for dilution of the present entitlements of the Registered Holders and says it is not clear how the provision is to be reconciled with the criterion that the Registered Holders have a present entitlement to the capital and income of the Unit Trust. Clause 2(c)(iv) of the Deed prevents the Trustee exercising its discretion under cl 6 to remove, restrict or otherwise affect the entitlements in cl 2(c)(i), cl 2(c)(ii) and cl 2(c)(iii). The exercise of discretion could only provide for the issue of special units if they did not dilute the present entitlements of existing Registered Holders under those provisions as, for example, by issuing them on the existing terms of the Deed including cl 2(c) for a price that maintained the value of the units of existing Registered Holders. 48And if for some reason, presently unimagined, cl 2(c)(iv) of the Deed did not apply to the exercise of discretion under cl 6, the discretionary power could not be exercised to the detriment of the entitlements given by cl 2(c)(i), cl 2(c)(ii) and cl 2(c)(iii) because the introductory words, "Notwithstanding any other provision of this Deed", require that cl 2(c) prevail over cl 6. 49As to cl 5(b): (e)Attention is drawn to cl 5(b). It provides that units confer no interest in any particular part of the Fund or of any investment. That is so but it does not prevent a Registered Holder being entitled to a fixed proportion of the capital of the Unit Trust under cl 2(c)(i) of the Deed. 50The Appeal Panel also considered (at [36], [37]) that the requirement in s 3A(3B)(a) that the Deed "specifically" provide for the matters referred to in subparagraphs (a)(i) and (ii) could not be satisfied by making provision in the same terms as those subparagraphs. Instead, more than "mere recitation" was required and one ordinarily would expect "specific provisions" and "machinery" addressing those matters. 51It was submitted by the Chief Commissioner that for the criteria to be satisfied the statute required conclusory statements of a high level of abstraction to be married with specific terms which addressed the relevant subject matter at a much more detailed level. The inability to undertake this marrying process meant that the specificity required by s 3A(3B)(a) of the Management Act was not satisfied. 52As I have said, however, while the expressions in the statute are of general form they do not lack precision. They are operative rather than conclusory and, in my view, the necessary specificity is present in the Deed. 53In particular, the Appeal Panel concluded at [40] that the Deed had to spell out how the winding up of the Unit Trust was to be initiated. It was said that this should deal with such issues as whether all the Registered Holders, a majority of the Registered Holders, or a sole Registered Holder could activate the process. The Appeal Panel held that merely reiterating the statutory words as a term of the Deed did not achieve this. 54The reference in cl 2(c) of the Deed is to Registered Holders, but cl 1(l) of the Deed provides that words importing the singular shall include the plural and vice versa. 55The reference to Registered Holders in cl 2(c) of the Deed is best understood as a reference to each of them because cl 2(c)(i) and cl 2(c)(ii) describe entitlements that are held and enjoyed separately. 56It follows that any Registered Holder could require the Trustee to wind up the Unit Trust under cl 2(c)(iii). That enables a realisation of the value of a unit in circumstances in which a request for redemption under cl 9 is refused or hedged around with conditions. 57It would hamper the ability to gain access to the capital represented by a unit if distribution upon a winding up was only available upon a request by a majority of, or all, the Registered Holders. That could not have been the presumed intention of the parties to the Deed and its amendment. 58On its proper construction the Deed satisfies the criteria in s 3A(3A) of the Management Act and the Appeal Panel erred in concluding otherwise. Leave issue 59During final address counsel for the Chief Commissioner sought leave to raise an argument not put in the Revenue Division of the ADT or before the Appeal Panel. The court reserved its decision on the application. 60The argument sought to be raised was that cl 2(c)(iii) of the Deed contains an implied power to distribute land in specie whereas s 3A(3B)(a)(ii) of the Management Act requires a power to distribute trust property in specie. 61In my view, leave should be given. This is the first time that the provisions have been before this Court. The argument has not been considered, judicially, before. The point is a matter of construction and not a matter for evidence and counsel for Sayden could not point to any prejudice apart from not having had the opportunity to address the issue. 62The argument is that cl 2(c)(iii) of the Deed contains an implied power to distribute the land in specie but not to distribute in specie any other property of the Fund. 63There is no other provision of the Deed that empowers the Trustee to make in specie distributions of other property of the Fund. Clause 4(b) provides for realisation of the investments of the Fund and the distribution of the net proceeds. 64In contrast, s 3A(3B)(a)(ii) of the Management Act, in providing that the beneficiaries of the trust might require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property also necessarily implies that the trustee have power to distribute trust property in specie. 65It was submitted that the Deed did not provide for the in specie distribution of investments of the Fund other than the land and hence the Unit Trust failed to satisfy the relevant criteria. 66This argument should be rejected. At the relevant date, 31 December 2010, the only asset of the Fund was its interest in the land. It was, therefore, the only trust property under the Deed. 67For as long as that situation continued, s 3A(3B)(a)(ii) of the Management Act was satisfied. A Registered Holder was entitled to require the Trustee to wind up the Unit Trust and distribute the trust property, being the interest in the land, and the Trustee had power under cl 2(c)(iii) to do so. 68If the Fund at some later time includes assets other than land, the position may be different if cl 2(c)(iii) of the Deed remains in its present form. 69But the issue is to be determined at the relevant date, and on that date the relevant criteria were satisfied. 70The orders I propose are: (1)Leave granted to the respondent to argue on the appeal that whereas cl 2(c)(iii) of the Deed grants an implied power to distribute land in specie s 3A(3B)(a)(ii) of the Management Act requires a power to distribute trust property in specie. (2)Appeal allowed. (3)Decision of the ADT Appeal Panel of 2 May 2012 set aside. (4)Decision of the ADT Revenue Division dated 7 December 2011 restored. (5)Respondent to pay appellant's costs of the appeal and of the proceedings before the ADT Appeal Panel. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 May 2013